By Momei Qu

Contributor, Stock Traders Daily

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(La Jolla CA)  The general consensus seems to predict a continued decrease in venture capital funding in 2009. The third annual “Predictions Survey” by the National Venture Capital Association (NVCA) found that 92 percent of VCs predicted that investing will decline in 2009 from 2008. More than 96 percent believed new companies will have a hard time getting investments in 2009, and over 60 percent said overall funding will drop below $27 billion. According to another research by Thomson Reuters, just 40 venture capital funds raised money in Q109, the lowest number since third quarter of 2003.

Investments Are Still Being Made

Despite the above observations, venture capital funding has not gone away. Just last week, electric car start-up Tesla Motors convinced German car company Daimler AG (NYSE: DAI - Free Trading Report) to purchase a 10% stake in the company. Exact terms were not released, but Tesla stated that the investment was up to but not more than $100 million. Also last week, Axcient, a provider of data backup services, raised an additional $2 million as part of its first round of financing, for a total of $8 million in its Series A round.  This Tuesday, Amgen (NYSE: AMGN - Free Trading Report), a leading human therapeutics company, exercised an option for $75 million to acquire the rights of an experimental drug to treat heart failure from Cytokinetics, an early stage biotechnology company.

Shift in Expectations

What this shows is that early stage companies across various sectors are still getting funding. Venture capitalists are making investments, but the difference is that they have become a lot more selective. Unlike the dot-com boom when venture capitalists are throwing money at every company that has an idea for an internet website, current investments go to the brightest, most unique ideas and only after a high level of due diligence. Other factors such as track record and management background also become more important now that credit is tight. So while it is much harder for start-up companies in this environment to attract the attention of venture capitalists and even harder to acquire funding, it also means that the quality of investments in 2009 will be high since they should be the “cream of the crop.”

Favorable Time To Invest

Getting capital has not only gotten more difficult for the start-up companies but for the funds themselves as well. For the ones that still have capital on hand or can still find a lender though, this may be a prime time for investing. Current interest rates are low, and funds could get a greater share of a company for the same price due to the lack of investors. It also means less competition for the most promising start-ups, so the funds could take advantage of both higher quality and lower price.

An “investment” doesn’t always come in the form of cash. Last month, IBM (NYSE: IBM - Free Trading Report) decided to partner with Schooner Information Technology, a provider of data access appliances. IBM can benefit from Schooner’s new, cutting edge technology while Schooner utilizes IBM’s brand name and sales and marketing support to reach out to new customers. Sometimes a company doesn’t even need to look outside for a good investment. General Electric (NYSE: GE - Free Trading Report) announced earlier this month that it plans to spend $100 million to build a new factory in upstate New York that will make batteries, a sector popular with venture capitalists today. Regardless of the type of investment, history has shown that sometimes the greatest opportunities are presented in the worst economic times.

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